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HSBC Global Asset Management has slashed the fees on its index-tracking funds aimed at retail investors, raising the prospect of a price war for these products just a week after the low-cost US manager Vanguard launched its first products in the UK.

The fund manager is cutting its fees to 0.25% of assets under management, per year, across the board. Some of HSBC's trackers, such as those following US and European indices, had charged as much as 1% of assets a year - a level that in the institutional marketplace, is more associated with active fund management strategies.

Adrian Lowcock, a senior investment adviser at Bestinvest, said: "This sounds like a reaction to Vanguard and the growing popularity of exchange-traded funds. Coming down to this level makes them one of the most competitive in the market. It doesn't surprise me, it's probably an inevitable step in the direction the market is going."

HSBC said the lowered fees would lead to total expense ratios - which include brokerage fees and other expenses on top of the manager's take - in the range of 0.27% to 0.37%, depending on the particular fund.

That puts it in the same range as Vanguard, whose eleven tracker-funds launched last week, charging between 0.15% of assets and 0.3% in total expense ratios. However, as yet these are only available on the Alliance Trust platform, one of the smaller ones.

Achieving scale of distribution will be a challenge for Vanguard, Lowcock said, as other managers have also cut their costs in recent years. These include Fidelity International, which runs one of the biggest retail funds platforms in the UK.

He said: "Vanguard are clearly moving into a market that is already very competitive, with big incumbent players. But they have the resources to take this battle on."

HSBC said its revamped range would now appeal to "the growing base of fee-based advisers" who charge retail clients for advice, instead of recouping their costs in the form of commission from asset managers. The latter model has been accused of creating opportunities for mis-selling.

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Andy Clark, a managing director in wholesale distribution at HSBC, said the fee cut also chimed with the Financial Services Authority's current review of retail fund pricing, which will encourage "factory gate pricing".